Hospital Groups Challenge Two-Midnight Rule; Legislators Seek to Delay It

After this blog post appeared on January 28, CMS announced on January 31 that it was further delaying Recovery Auditor (RA) post-payment patient status reviews of inpatient hospital claims until October 1, 2014. Previously, RA reviews of claims relating to the “two-midnight” rule put in place October 1, 2013, had been delayed until March 31, 2014. As noted in this blog hospital groups and members of Congress have been seeking to delay or revise the two-midnight rule since it was first proposed in 2013.


The American Hospital Association, along with regional hospital associations and four hospital systems, have taken the first steps to challenge the two-midnight rule and other Medicare payment changes implemented on October 1, 2013 under the Inpatient Hospital Prospective Payment System (IPPS) update for fiscal year (FY) 2014. In addition, the House of Representatives is considering legislation that would delay implementation of the rule until October 1, 2014.


Final rule CMS-1599-F incorporated two changes to the IPPS for FY 2014 that affects reviews by Medicare contractors, when an inpatient admission is considered reasonable and necessary: (1) a two-midnight presumption, which directs Medicare review contractors not to select inpatient claims for review if the inpatient stay spanned two midnights from the time of admission, absent evidence of gaming or abuse; and (2) a two-midnight benchmark, which instructs admitting practitioners and Medicare review contractors that an inpatient admission is generally appropriate when the admitting practitioner has a reasonable and supportable expectation, documented in the medical record, that the patient would need to receive care at the hospital for a period spanning two midnights.

The two-midnight rule applies to acute care inpatient hospital facilities, long-term care hospitals (LTCHs), inpatient psychiatric facilities (IPFs), and critical access hospitals (CAHs). It does not apply to admissions to inpatient rehabilitation facilities.

According to CMS, “hospital inpatient admissions spanning 2 midnights in the hospital will generally qualify as appropriate for payment under Medicare Part A.” CMS estimated that IPPS expenditures would increase by approximately $220 million due to an expected net increase in inpatient encounters under this policy, so it imposed a 0.2 percent reduction in IPPS payments to offset this estimated $200 million in additional IPPS expenditures.

The hospital organizations, along with hospitals that are part of Banner Health (AZ), Einstein Healthcare Network (PA) and Wake Forest University Baptist Medical Center (NC) and The Mount Sinai Hospital (NY) filed an appeal with the Provider Reimbursement Review Board (PRRB) asking the Board to grant expedited judicial review for the hospitals’ claims that the rule’s 0.2% payment cut in FY 2014 for IPPS hospitals is unlawful. According to the filing, “the Providers seek judicial review of pure questions of law regarding the substantive and procedural validity of the 0.2% reduction. Because the [PRRB] lacks the power to grant the Providers’ requested relief, it should grant expedited judicial review.”

Delay in RAC reviews

In order to give hospitals time to adjust to the two-midnight guidelines, CMS also instructed Medicare Administrative Contractors (MACs) and Recovery Auditors (RAs) that, absent evidence of systematic gaming or abuse, they were not to review claims spanning two or more midnights after admission for a determination of whether the inpatient hospital admission and patient status was appropriate. In addition, CMS has prohibited RAs from conducting patient status reviews on inpatient claims with dates of admission between October 1, 2013 and March 31, 2014. CMS has noted that “physicians should generally admit as inpatients beneficiaries they expect will require 2 or more midnights of hospital services, and should treat most other beneficiaries on an outpatient basis.”

Admissions down due to change?

A December 2013 report on the hospital industry from Citi Research showed inpatient admissions to hospitals declined 4.5 percent in November 2013 compared to November 2012. Only 5 percent of hospitals that responded to the Citi survey reported year-over-year growth in overall admissions, the lowest percentage in 11 years of Citi Research tracking these numbers. Citi analysts attributed the slowdown in hospital admissions to the two midnight rule. CMS has not released any information yet as to whether the two-midnight rule has affected hospital admissions for medicare beneficiaries.

Legislation to delay two-midnight rule

In December, several congressmen sponsored the Two-Midnight Rule Delay Act of 2013 (HR 3698) which would delay enforcement of the two-midnight rule for admissions occurring before October 1, 2014.

The bill prohibits Medicare review contractors from denying a claim for inpatient hospital services furnished by a hospital (including a long-term care hospital or inpatient psychiatric facility), or inpatient critical access hospital services furnished by a critical access hospital, for discharges occurring before October 1, 2014: (1) for medical necessity due to the length of an inpatient stay in such hospital or due to a determination that the services could have been provided on an outpatient basis; or (2) for requirements for orders, certifications, or recertifications, and associated documentation relating to such matters.

The legislation also directs HHS to develop: (1) a Medicare hospital payment methodology for short inpatient hospital stays; (2) general equivalency maps to link the relevant International Statistical Classification of Diseases and Related Health Problems (ICD)-10 codes (used to report medical diagnoses and inpatient procedures) to relevant Current Procedural Terminology (CPT) codes, and the relevant CPT codes to relevant ICD-10 codes, in order to permit comparison of inpatient hospital services and hospital outpatient department services; and (3) a second crosswalk between Diagnosis-Related Group (DRG) codes for inpatient hospital services and Ambulatory Payment Class codes for outpatient hospital services.